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FY21 guidance upgrade: Are SEEK (ASX:SEK) shares a buy?

SEEK Limited (ASX: SEK) has upgraded its FY21 guidance based on its FY21 trading in the year to date.

SEEK’s profit guidance upgrade

Trading update

The employment portal business gave a trading update for the financial year to date to October 2020.

It said that year to date revenue is well above the underlying assumptions for its illustrative scenario which it gave at its FY20 result a few months ago.

SEEK ANZ, OES (online education services) and Zhaopin have performed well above the illustrative assumptions, with SEEK Asia also above those assumptions but to a lesser extent.

The company said that revenue growth has been driven by a mix of rehiring of roles lost during previous months, and growth in some sectors.

Finally, in terms of the trading update, SEEK’s ESV (early stage ventures) continue to perform well, which has increased its conviction level to re-invest.

FY21 guidance

Management said that forecasting remains challenging because of the uncertainty in all markets caused by COVID-19 restrictions, overall business confidence and foreign currency exchange rates.

SEEK’s advertisement volumes have responded quickly to changes in COVID-19 restrictions, both positively and negatively. Yields are also sensitive to the sectors in which activity occurs.

Assuming that COVID-19 restrictions and hiring activity remains consistent with current levels, whilst excluding significant items, revenue is expected to be around $1.6 billion, EBITDA (EBITDA explained) to be in the order of $400 million, SEEK Investments’ ESV losses to be in the order of $55 million and reported net profit to be in the order of $50 million.

This would represent a small increase of revenue, perhaps a decline of EBITDA and a seemingly significant reduction of net profit from $90.3 million before significant items in FY20.

Should SEEK shares be sought after?

SEEK was recently attacked by a shorter. Yet the SEEK share price is closed to an all time high. It’s hard to say whether SEEK is having to work hard just to stay still in revenue terms, or whether its investments will lead to big results in the next few years. I don’t think SEEK represents great value today, considering how large it already is and how it’s finding it difficult to grow profit.

There are other ASX growth shares I’d rather buy for my portfolio first such as Pushpay Holdings Ltd (ASX: PPH) which seems to have more scalability.

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At the time of publishing, the author of this article does not have a financial or commercial interest in any of the companies mentioned.

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